The $35-Billion Build

How can we determine if this is money well spent?

After its hangover softened in late May 2015, the NDP likely felt winner’s remorse. The new government inherited hundreds of decaying hospitals and schools, many with leaking roofs, toxic mould or rodent infestations, all despite the civil service begging for years—largely unsuccessfully—for money for repairs or replacements. As the year wore on the buzz faded further, with Alberta’s mayors resuming their calls for provincial money for mass transit and ring roads, citizens again demanding a new cancer centre and rural municipalities pointing to failing wastewater systems. At the same time, the price of oil, and the amount our government pulls in from hydrocarbon royalties, had tanked to 1970s levels.

Knowing they faced an economic credibility challenge as well as a province held together with duct tape and staples, the NDP brought in former Bank of Canada governor David Dodge to advise on its upcoming budget. The economist proposed that Alberta go against its own spend-only-during-good-times orthodoxy. Economic troubles, he argued, gave the NDP government not reasons to slash, as the right claimed, but to increase capital investment. It could borrow at low interest rates and buy labour and materials at non-boom prices. His argument that Alberta had lower levels of public infrastructure relative to its GDP than Canada’s five largest provinces was the crema on the espresso.

In late October 2015 the NDP’s first budget committed Alberta to spend 15 per cent more on public infrastructure over five years than the former PC government had proposed. In cash terms this is a $34.8-billion investment, or roughly $6.9-billion each year until 2020. Thanks to those disappearing oil royalties, though, Alberta will take on debt to build—about $36-billion by 2020.

Repairing deteriorating infrastructure is necessary, but if we’re going into debt for new builds, we must be vigilant. How are Alberta’s new infrastructure decisions made? What are the criteria? How do we prevent political interference, favouritism or vote-buying, long Alberta’s scourges when it comes to infrastructure? How can we avoid overbuilding or spending more money than we need to?

We need to continually ask questions, says Parkland Institute executive director Ricardo Acuña. “You don’t want to spend money for the sake of spending money,” he says. “People need to make sure we’re getting value and infrastructure money is being well spent.”

Donna Wilson walked into Edmonton’s Misericordia Hospital cafeteria a few years ago and found water above her ankles. Wilson, once a nurse at the hospital and now a professor at the University of Alberta, says it was another flood, a not-rare occurrence at the Mis. “Can you imagine the mould issues?” she says. “And where are people supposed to eat? The place is quite literally a dump.”

At 47 the Misericordia has not aged well. Staff have complained for years that the facility is so flood-prone that they have to schedule procedures based on weather forecasts. Worse, says Wilson, is that millions are spent yearly finding ways to keep the hospital running. “It just sucks up money for repairs,” she says.

The story—of facilities running flat out to meet a population boom and crumbling as a result—is replicated at dozens of hospitals and schools throughout Alberta. How did things get like this, given the resource riches we’ve extracted that drove the Canadian economy for years? Most in the know say it was because of former premier Ralph Klein.

Since the start of the Klein era, our government has preferred to control debt rather than repair or build. When times toughened, cries for new or repaired infrastructure were often drowned out by the drumbeat of fiscal conservatism. Today the province’s municipal infrastructure deficit (roughly the difference between what our cities and towns say they need and what they have, and excluding schools and hospitals) is estimated at about $26-billion by the Alberta Urban Municipalities Association. The cost to repair Alberta’s existing roads is projected at anywhere from $2-billion to $16-billion (the exact figure is hard to pin down given different urban and provincial road-rating systems).

The Misericordia hospital is so flood-prone that staff have to schedule procedures based on weather forecasts.

Klein paid down a $23-billion debt between 1993 and 2004 by adopting austerity as his guiding light. But he did this largely by gutting infrastructure investment between 1995 and 2003. Take hospital beds: Wilson’s research has found Alberta had not quite twice as many of them (about 13,000) in 1993, when Klein took office, as it did in the late 1990s—and also today. Ironically, these bed losses happened all the while Alberta operated 105 hospitals, the highest number per capita in the developed world. Why do we have so many? We built dozens of rural hospitals during the Lougheed years. Critics, including Wilson, say these won loyal rural voters for the PC party, but today they provide only basic care while draining resources from the large hospitals that provide the bulk of health services.

Klein also followed a “pro-cyclical”—or spend-only-when-times-are-good—logic, in opposition to the long-established wisdom of counter-cyclical spending (think John Maynard Keynes). The counter-cyclical idea sees countries like Switzerland obliged by law to save revenues during peaks to invest during the valleys, thereby smoothing spikes and retaining jobs in the lean years.

One under-examined result of the pro-cyclical approach, says Vivian Manasc, is that Alberta has spent top dollar to build its public infrastructure. Manasc steered the Edmonton architecture firm Manasc Isaac through the dark Klein period by taking on projects in the Arctic and even Russia. Doubly frustrating for her is the bad economics of what little building did take place during booms. “The prices of materials can vary 50 per cent,” Manasc says. “So the same 2×4 can be $5 today, $10 tomorrow.” Sadly, she says, Alberta’s pattern has been to buy the more expensive lumber. Building in peak times means “you don’t often get as good a value for your dollar.”

The question of when to build infrastructure can challenge any government, says Constance Smith, an economics professor at the University of Alberta. Making the question even harder in this province, she says, is the volatility of resource revenue and the unpredictability of markets. That means the “When to build?” question for Alberta is often whether a downturn will be short lived or long term, and whether borrowing to invest will pay off. Smith cautions that Ontario, which has used deficit financing to build infrastructure during downturns, now spends 10¢ of every revenue dollar to pay interest on the provincial debt.

But Acuña counters that by spending money badly and at the worst times, Klein merely incurred a different kind of deficit. “We couldn’t have come out of debt if he hadn’t cut spending on infrastructure,” he says. “People got on board—despite the fact they were living the realities of a lack of money invested in infrastructure.” And despite the fact they’d have to pay the bill eventually, one way or another.

Alberta’s cities are where these tensions play out most clearly today. Mass transit has become a central debate in them, thanks to decades of under-investment. In Calgary the big question is “Where will the money come from?” for the LRT’s much-needed Green Line and for expanding Bus Rapid Transit. In Edmonton it’s “How did we spend so much for so little?” after nearly $700-million (66 per cent provincial, 19 per cent municipal and the remainder federal) was spent to build some 3 km of new track, with the resulting Metro Line LRT still operating at half speed more than a year after opening (18 months later than promised) thanks to a signals snafu.

The infrastructure deficit in Alberta’s cities is real, says Quinn Nicholson, with Edmonton’s transportation department, but it’s also open to some interpretation. “That’s answered by what kind of a city people want to live in,” he says. “If you just want to drive your car everywhere and shop at the local strip mall, then it’s not that big. Then we just need to continue repairing and renewing roads. But if we actually want a city that’s walkable, bikeable, has viable public transit, is environmentally progressive, well, the gap is pretty huge.”

How huge? In Edmonton, just for LRT projects proposed up to 2040, the price tag is approximately $7-billion. Calgary’s Green Line alone is estimated to cost between $4-billion and $5-billion.

The desperation of different regions invites the question: Just how is the NDP deciding what gets built?

Infrastructure Minister Brian Mason says the civil service handed him an infrastructure wish list worth $15-billion per year, including a disturbing amount of basic maintenance and catch-up. And the NDP has said no more often than it has said yes, Mason claims. “We have [approved] a quarter to a third of the projects proposed over that five-year span.”

So what is the build plan, then? Unsurprisingly, it’s awash in schools—most of them promised by the former PC government. Over the next five years, the government will spend more than $3.5-billion to build or significantly refurbish 200 schools. Like many of its hospitals, most of Alberta’s current schools were built before or during the Lougheed years (1971–1985), Mason says, and need serious attention.

The NDP has devoted similar amounts to upgrading health facilities, including $1.2-billion for the previously deferred Calgary Cancer Centre, and other money for a new hospital in Grande Prairie and an upgrade to Medicine Hat Regional Hospital. Meanwhile, in its electoral base of Edmonton there’s just $20-million for more planning to fix the Misericordia and Royal Alexandra hospitals. Their combined repair bill is estimated at some $7.7-billion.

Just more than $6-billion is set aside for the Municipal Sustainability Initiative, a pool Alberta towns and cities draw from to build everything from community rinks to transit stations and forensic investigation centres. Roads—“flat infrastructure” in industry parlance—dominate the plan, and are set to receive $4.6-billion, with highway rehabilitation and ring roads in Calgary and Edmonton accounting for a large chunk of that.

Some $940-million will go to post-secondary facilities and another $298-million to seniors housing. The plan contains a few head scratchers, too: more than $2-billion is devoted to “green infrastructure” under the NDP’s climate leadership plan, with little detail provided, and $497-million is devoted to further carbon-capture projects, honouring previous government commitments despite their poor track record and despite NDP election promises to scrap carbon capture.

The NDP’s 2016 budget also increases funding for infrastructure maintenance and renewal—some $6.2-billion in total for repairs to bridges and roads, schools, post-secondary institutions, hospitals and seniors facilities across the province.

The wildcard is Ottawa, as it too wants to build infrastructure. The federal government has committed to sharing $120-billion with the provinces and territories for infrastructure over the next 10 years—more than double what the Harper government had previously committed over a similar timeframe. And the money, in phase one of the project at least, is already beginning to move. The feds announced on September 1, 2016, that a bilateral agreement would see just more than $1-billion head to Alberta for two programs—the Public Transit Infrastructure Fund and the Clean Water and Wastewater Fund.

Ottawa has pledged to contribute up to half of the money for the projects, with Alberta and municipalities providing the balance. Ottawa’s investment will accelerate provincial projects in the queue, says Aileen Machell, communications director with Mason’s office. The federal announcement also included a list of 46 transit projects, almost all of them in Edmonton, and 17 wastewater initiatives across Alberta, already approved. “Today’s announcement opens the door for the creation of new construction jobs and needed infrastructure in our communities,” said Lisa Holmes, president of the Alberta Urban Municipalities Association.

The AUMA, however, is also critical of how different levels of government split the infrastructure bill. “AUMA has been steadfast… that the share of funding that each order of government pays for infrastructure needs to align with their respective share of tax dollars,” its release continues. “AUMA is pleased that our call for a contribution formula of a 50 per cent federal, 40 per cent provincial, and 10 per cent municipal share was heard by the federal and provincial governments for the water and wastewater component.”

Aside from the currently announced projects, though, the larger phase two of Ottawa’s infrastructure program is still being negotiated. And here the government-speak is heavy. How the federal dollars will affect Alberta’s commitments on its infrastructure plan is not clear, aside from the point that every federal dollar requires a provincial contribution. Will there be strings attached to the money? All Alberta is saying is that Ottawa and the NDP’s priorities are “aligned,” according to Machell, from Mason’s office.

This lack of clarity goes from macro to micro. Funding arrangements vary extensively and “unpredictably” from project to project, says Nicholson, with Edmonton’s transportation department. He notes the federal government’s mantra is often that projects should be funded equally by the three levels of government, but says this isn’t always the case. The under-construction Valley Line LRT, for example, sees Edmonton contributing nearly as much as Ottawa and Alberta combined. And the burden can shift if projects go under or over budget. Recently, Edmonton Mayor Don Iveson has said if the proportion of municipal dollars required remains as it is in phase one of Ottawa’s infrastructure investments, many future city projects will have to be delayed.

Still, Nicholson says the biggest change is that Ottawa is now looking to invest not only in shiny bits but in planning and engineering for projects. “Which is a critical, critical step, as they then have a stake in actually funding those projects that become shovel-ready, as well as creating a timing window around them,” he says. “Before, this was a major risk for a city like Edmonton—doing all the planning or engineering on a project and then sitting around waiting for capital money that might never come, or might be a significant reduction under what was expected, causing scope reductions on the project.”

As ambitious as Alberta’s infrastructure plan is, many long-sought projects were not approved in the government’s recent budget. Anxious mayors, hospital staff, teachers, commuters and community leaders want to know: When is it our turn?

Good question. In opposition, the NDP pushed for a public sunshine list of deferred infrastructure projects in Alberta, ranked by order of build priority. Then, during the election campaign, its platform promised to make infrastructure decisions and priorities “transparent … so that funding goes to build the most important projects rather than to promote the political fortunes of the PCs.” But now, in power, the NDP released a list in April 2016—and critics point out it only lists unfunded projects alphabetically rather than by priority. Mason told reporters the NDP never promised a prioritized list and that publishing one would see regions and municipalities fighting over their projects’ rankings.

Still, the desperation among different regions and the mixed messaging invites the question: Just how is the NDP deciding what gets built?

Mason says that government departments submit ongoing requests for infrastructure investment. For example, Alberta Health Services says it identifies its priorities in a three-year rolling schedule that’s reviewed annually. Meanwhile, the government actively seeks counsel from MLAs (one hopes all MLAs, regardless of party) about what is needed. “We ask MLAs to do the work in their constituencies and connect with their own officials,” Mason says. For more public input the government has held town halls across the province, as well as offering online surveys.

All infrastructure requests are broken down to the “envelope” level (representing each department) and then put through government criteria tests, Mason says. These criteria include economic and social benefits tests, as well as the government’s priorities and environmental benefits tests. In all, 12 factors are considered, including the condition of existing infrastructure, its potential usage numbers and even public criticism. The matrix is simplistic, however, and provides no scoring or other measures by which the public can critique it. Indeed, it reads as if it were created in an afternoon. And ultimately the cabinet and premier still make the final decisions. Behind closed doors.

Those closed doors and that weak-sauce criteria matrix raise the question of political interference—the very infrastructure scourge the NDP called out during the election. As we build more infrastructure than ever, what of that? Mason says there must be political oversight, though he draws a distinction from past behaviour. “There’s two kinds of political involvement,” he says. “One is the one we’re trying to get away from.” What Mason means—what the NDP in opposition railed against—is perceived cronyism and political favouritism, such as what happened with former PC education minister Gordon Dirks in the 2014 Calgary-Elbow by-election, where school improvements in that riding were suddenly promised mid-race. Alberta’s ethics commissioner later ruled that Dirks’s actions constituted “blatant political opportunism.”

Ultimately the cabinet and premier make the final decisions. Behind closed doors.

“I think we’ve put in place the protections that will deal with that,” Mason says. “We’re using clear criteria to select projects, and by establishing the unfunded projects list, people know what projects are coming down the pike. The overall direction has to be provided at the political level. We make no apology for that, because we are elected to make decisions for the public.”

Protections are something we might want to ask a whole lot more about. Take protection from building too much, as any infrastructure plan comes with that risk. Even if we could all agree that Alberta has less stuff than its current population warrants, what future population are new projects being built to serve? Alberta’s population has nearly doubled, to 4.3 million, since Klein took power in 1993 and started slashing infrastructure investment. The current trend is to add a new Red Deer to Alberta every year or so. Mason would not provide the projections the NDP is using, but did concede they are new. “We’re not using projections that would have made sense a few years ago,” he says.

There’s also the small matter of protecting the taxpayer from paying too much for building these new roads, schools and cancer centres. Robert Shouldice, an Alberta-born lawyer with Vancouver’s Borden Ladner Gervais law firm, oversees procurement contracts that undergird big public spending on infrastructure. His current files include LRT projects in Edmonton and Ottawa. He makes clear he speaks for himself and not his clients or firm.

To Shouldice, the big question any major investment in infrastructure raises is how robust the tendering process is. The Alberta government typically follows a two-step technical qualification and assessment approach and then selects the lowest-priced bid, Shouldice says—though there are exceptions. It’s not cutting edge. Some jurisdictions, Shouldice continues, have created arms-length bodies that critique procurement contracts. These organizations remove the direct connection to political masters and are overseen by a board, and typically provide guidance on all complex public capital project contracting. Though Alberta has a group overseeing procurement embedded within Service Alberta, called Procurement Services, “it isn’t as independent as those other organizations,” Shouldice says, noting it reports directly to government rather than to an independent board as in Ontario, BC and Saskatchewan. Those provinces “take out some of the potential for political interference or involvement,” he says, “creating more rigour in terms of best procurement practices.”

Given we’re spending multiple billions more than in the past, a ranked list of infrastructure priorities is essential so that the public can hold officials to account. Otherwise, decisions for what gets built might be influenced by which region’s voters a party wants to seduce or what groups complain the loudest. To limit opportunities for cronyism, our contract procurement process needs to go from opaque to the best in the world.

And Alberta needs to take a hard look at what its potential futures—with and without huge oil revenues—mean for infrastructure planning. Are we building for a future population that won’t materialize? Are we building to best foster social benefits and economic growth? Or are we building what glitters most brilliantly as you drive by on the highway?

RELATED POSTS

RELATED POSTS

Rafael Baston is no climate change denier. A supply chain manager with TransCanada Corp. and a father of four, he broadly agrees with the Alberta government’s decision to impose a carbon levy on the province’s consumers.
Yet he says the carbon levy is unlikely to prompt his family to reduce their ...

A decade ago, when Alberta was debt-free and staring at a $7.4-billion surplus, Premier Ralph Klein decided it was time to spread the wealth. He announced that every person who lived in the province—and, as it turned out, more than a few who didn’t—would receive a cheque for $400 as ...

Noel Somerville dabbles in stocks, but he refuses to gamble on his electricity bill. The Edmonton senior—like 57 per cent of Albertans—has chosen not to enter into a contract to purchase electricity from one of more than 30 retailers now selling power in Alberta’s unique deregulated electricity market. He can’t ...